REER index rises to 104 in January

KARACHI: Pakistan’s real effective exchange rate (REER), which shows the competitiveness of the local currency against trading partners, appreciated to 104 in January from 103.7 in the previous month, central bank data showed on Tuesday.

REER has increased by 3.98 per cent so far this fiscal year. According to analysts, the increase in REER shows that the rupee is slightly overvalued. It also indicates that the local currency has strengthened versus the basket of its trading partners. Thus, imports are cheaper and exports are less competitive in the market.

On Tuesday, the rupee maintained its downward trend and closed at 279.37 per dollar in the interbank market. It had ended at 279.27 in the previous session.

Dealers said the local currency remained under pressure due to dollar demand from importers. They said the market players kept an eye on Pakistani authorities’ meetings with the International Monetary Fund (IMF) and World Bank (WB) officials to get a sense of the rupee’s future course.

“The meetings with the IMF and World Bank appear to be progressing positively, as encouraging statements from the IMF commend the economic team for staying committed to the reform programme, said Chase Securities in a note.

“Additionally, the [WB] delegation is engaging with the government to discuss their reform initiatives, including seeking assistance for the privatisation of Discos and other state-owned entities, it added.

“It is reassuring to see the government maintaining its commitment to the IMF programme, as the positive impact is evident in key economic indicators such as inflation, exchange rates, current account surplus, and primary surplus”.